Financial Planning: University Education and Retirement Savings

This assignment provides a comprehensive financial plan for Majid and Mina, an Ontario couple with a daughter, Hana. The plan addresses their need to save for Hana's university education and their own retirement. The analysis explores the optimal allocation of funds between a Registered Education Savings Plan (RESP) and a Tax-Free Savings Account (TFSA), considering government grants and investment returns. The solution details the projected growth of Hana's education fund and the retirement fund over a seven-year period, based on the proposed investment strategy. The assignment also evaluates the financial prudence of paying down their mortgage with their savings, concluding that it is not advisable due to the higher returns on investment. The plan provides a clear and practical approach to maximizing the family's financial benefits, taking into account current Canadian tax laws and investment options.

Financial Planning-Optimum Strategy
Introduction
The assignment involves financial planning for Majid and Mina and their daughter Hana. The
family has an annual income of $ 120000 and surplus of 8000 per year. Further, they have an
existing saving of $92000 on which they earn an interest of 0.55% Further, they have never
made any contribution to TFSA and RESP and accordingly wish to explore this opportunity so
as to save sufficient balance for their child welfare and education as well as for themselves on
retirement. The assignment seeks to find solution for the said planning so ad to maximise the
benefit.
Facts
Majid and Mina are a couple living in Ontario. They have one child, a daughter named Hana.
Hana is 11 years old and was born in Ontario. Majid and Mina value post-secondary education,
and are planning to cover the cost of at least a 4-year university program for Hana, when she
turns 18. However, they haven't taken advantage of an RESP account yet. In meeting with you,
as their financial advisor, they got some valuable information regarding the RESP account.
They haven't also had a TFSA account and are keeping all their savings of $92,000 in a joint
high-interest savings account, which currently yields 0.55% of interest. Both Majid and Mina
have been part of a defined benefit pension plan that guarantees 2% of the average of their best
5 years for each year of service, and have minimal (zero) RRSP room. They collectively make
$120,000 per year ($60,000 each) and have $8,000 of surplus in their cash flow every year that
can be saved and invested. You prepared investor's profiles for Majid and Mina and assessed
their risk tolerance. Based on those two factors, you believe you could recommend an
investment strategy that matches the clients profile and objectives and gives an annual return
of 7% for their savings and investments. They have a mortgage of $250,000 with an annual
interest rate of $2.49% for 5 years. They just renewed their mortgage.
Queries
(a) Propose an optimum RESP strategy.
(b) If funds, contributions and government grants, are deposited into the RESP at the
beginning of the year, how much money will there be in Hana's education fund 7 years
from now?
(c) If retirement savings are deposited at the beginning of the year, how much money will
there be in the retirement fund, 7 years from now?
(d) Does it make sense for Majid and Mina to pay down their mortgage with their savings?
Analysis to queries
First as the family is planning to set aside $60000 for chid education, they should do the same
instantly.
Further, the amount of $ 60000 shall be allocated between TFSA and RESP in such a manner
that maximum advantage is obtained.

Propose an optimum RESP strategy
A Registered Education Savings Plan (RESP) is a special savings account for parents who want
to save for their child's education after high school. Further, a fixed amount can be set aside
per year for this purpose and this income shall earn a return of 7%.
RESP in Canada has the following salient features:
(a) Maximum investment during lifetime $50000;
(b) Maximum government contribution $500 or 20% of the amount deposited whichever is
lower;
(c) Maximum contribution time is 31 years.
TFSA plan salient features in Canada:
(a) Tax free account i.e. no tax is levied on interest earned in TFSA;
(b) Contribution is not tax deductible;
(c) Any one above 18 year of age can open it
In the current case, thus the optimum strategy shall be to invest $ 2500 in RESP for year 1 and
keep $ 57,500 in TFSA. The same strategy shall be carried out on year on year basis until
exhaustion of complete balance from TFSA to RESP i.e. 24 years.
If funds, contributions and government grants, are deposited into the RESP at the
beginning of the year, how much money will there be in Hana's education fund 7 years
from now
Based on model proposed above the amount that shall be in Hana’s education fund after 7 years
has been computed here-in-below:
RESP
Year Opening Addition Grant Interest Withdrawal Closing
1 0 2500 500 210 3210
2 3210 2500 500 434.7 6644.7
3 6645 2500 500 675.129 10320
4 10320 2500 500 932.388 14252
5 14252 2500 500 1207.655 18460
6 18460 2500 500 1502.191 22962
7 22962 2500 500 1817.344 27779
TFSA
Year Opening Addition Grant Interest Withdrawal Closing
1 0 60000 4025 2500 61525
2 61525 4132 2500 63157
3 63157 4246 2500 64903
4 64903 4368 2500 66771
5 66771 4499 2500 68770
6 68770 4639 2500 70909
7 70909 4789 2500 73197

Balance 100977
If retirement savings are deposited at the beginning of the year, how much money will
there be in the retirement fund, 7 years from now
Since, Majid and Mina are planning to save for their retirement and have deposited saving
account balance in the same along with surplus every year, the return that they may expect
seven years from now is tabulated as under:
TFSA
Year Opening Addition Grant Interest Withdrawal Closing
1 32000 8000 2240 0 42240
2 42240 8000 3517 0 53757
3 53757 8000 4323 0 66080
4 66080 8000 5186 0 79265
5 79265 8000 6109 0 93374
6 93374 8000 7096 0 108470
7 108470 8000 8153 0 124623
Balance 124623
Does it make sense for Majid and Mina to pay down their mortgage with their savings
No, it does not make any sense as the rate of return on investment is higher than the cost of
mortgage. Hence Majid and Mina shall not give away their savings on mortgage repayment.
Conclusion
Hope the above views duly answers your financial planning needs. The views are based on
current Canada law and may differ in case of any amendment in law.